Andrew HaskinsExecutive Director | Research | Asia+(852) 2822 0511Andrew.HaskinscolliersStephanie SunDirector | Research | Asia+(65) 6531 8635Stephanie.SuncolliersTerry SuenAssociate Director | Research | Asia+(852) 2822 0579Terry.SuencolliersTOP LOCATIONS IN ASIA LAW SECTORCOLLIERS RADAR OFFICE (LAW SECTOR) | ASIA | 5 DECEMBER 20182COLLIERS RADAR OFFICE (LAW SECTOR) | ASIA | 5 DECEMBER 2018Colliers “Top Locations in Asia: Law” report follows our earlier reports on the Technology and Finance sectors by recommending the best urban locations for legal occupiers. For 10 cities in developed and emerging markets, we examine around 50 criteria relevant to choice of location under three headings, socio-economic factors, property factors and human factors, and assign a score on each metric. Our analysis suggests that law sector occupiers pay particular attention to the following considerations when making decisions about operating in a new location in Asia: economic scale and growth potential of the city, proximity to clients, availability of talent, level of privacy and security, quality of office stock, and city safety. Many of these factors are similar to those that drive location decisions by technology and finance firms, but we assign different weightings to them that are more appropriate for Law.The top three cities with scores of above 63% in our model are Hong Kong, Singapore and Tokyo. Among the three, Hong Kong scores highly on employment considerations (e.g. political stability, ease of doing business, corporate tax rate), high availability of legal talent, and law-related factors (e.g. regulatory governance, expertise in common and civil law). Singapore ranks no. 2 due to superiority in employment criteria, high availability of legal talent, a well-respected support system for dispute resolution, and its top rank on human factors notably city safety and quality of living. Tokyos high score derives from high economic scale in the office and service-based sectors and the citys importance in the national economy (which together drive a high volume of business for law firms), as well as stability in the regulatory governance and legal systems.Source: Colliers International, based on data inputs from numerous sourcesOverall score: Hong Kong, Singapore and Tokyo lead the pack, Seoul and Shanghai come next0%10%20%30%40%50%60%70%HongKongSingaporeTokyoShanghaiSeoulBeijingShenzhenGuangzhouTaipeiChengduSocio-Economic Property HumanBased on qualitative and quantitative analysis of socio-economic, property and human factors, Colliers concludes that the three top locations in Asia for law sector occupiers are Hong Kong, Singapore and Tokyo. > Hong Kongs first place reflects its superior regulatory governance, flexibility in its legal system, the high level of openness of its legal market in an Asian context, and high availability of talent for the law sector.> Singapore ranks second in Asia with very high scores on employment criteria, availability of talent for law firms, and human aspirational factors such as city safety and quality of living.> Tokyo ranks third with high scores on economic scale and on law-related factors. The scores on law-related factors reflect stability in the regulatory governance and legal system as well as government efforts to transcend the boundaries between Japanese and foreign laws. Summary the Basic Law was adopted after Hong Kongs return from British to Chinese rule in 1997. The Peoples Republic of China has a different legal system essentially a civil law system with socialist influences. Under the “One Country, Two Systems” principle, Hong Kong is the only city within China where the common law system applies. Given the very close cultural links and the geographical proximity that Hong Kong enjoys with mainland China, Hong Kong provides an ideal base for international legal and arbitration services for both mainland and foreign enterprises.Hong Kongs legal services sector plays a pivotal role in satisfying the professional services needs associated with investment in mainland China.Since strong economic growth has transformed China into one of the largest mergers and acquisitions markets in Asia, many top global law firms have established a strong presence in Hong Kong to serve China and the wider region. At the same time, Hong Kong law firms have established a strong international-mainland business network and clientele.In addition to being the worlds gateway to mainland China, Hong Kong is the most open legal market in Asia, allowing foreign lawyers to practise local law after meeting certain requirements. According to the “Asia Pacific 100 2017 research”², Hong Kong has the largest number of partners in the Top 50 international law firms with 708 partners working in those international firms in the city as of June 2017._¹ See topuniversities/university-rankings/university-subject-rankings/2018/law-legal-studies.² The Lawyer (2017). Asia Pacific 100 2017. Retrieved: 20 November 2018, from thelawyer.Socio-economic40.0%Law firms6.8%Vacancy rate2.0%Others91.2%Source: Colliers InternationalFigure 1: Structure of Hong Kong CBD Grade A office stock Q1 2018Total stock:2.0 million sq metresProperty16.4%Human13.5%69.9%7COLLIERS RADAR OFFICE (LAW SECTOR) | ASIA | 5 DECEMBER 2018Property factorsHong Kong ranks no. 5 in Asia on property factors for Law. Hong Kong scores poorly on the sub-category of employer costs, owing to high average salaries and the worlds highest rents for CBD office space. By our estimate real estate costs represent 12-20% of monthly outgoings for law firms in Hong Kong; this is the highest range in the Asia Pacific region2. However, Hong Kong scores better on the sub-category of office accommodation (no. 3) for law sector occupiers, reflecting:> High availability of Grade A office space at 6.8 million sq metres (72.9 million sq feet) across the city. Central remains the preferred location for law firms in Hong Kong, with 6.8% of Grade A office space occupied by law firms (see Figure 1) and 93% of those law firms clustered in the core Central area.> The joint widest gap in Asia in rents between the CBD and cheaper areas,with rents in certain CBD fringe areas over 50% cheaper than in Central. While the great majority of law firms are still located within the CBD, the market has seen an acceleration of decentralisation, in particular to the Quarry Bay district on the eastern side of the Island.For instance, the relocation to Quarry Bay in 2017 of BLP, Ince & Co. and Freshfields has been followed by commitments from Baker & McKenzie, Simmons & Simmons, Eversheds Sutherland and RPC to relocate to Swires new development, One Taikoo Place, in the same district.> Good scores on the sustainable city index and city innovation index also included in our criteria.Human factorsHong Kong ranks third in Asia on human factors for law sector occupiers. In particular, scores are high for low personal tax rate, city safety, quality of living, and air pollution and climate. All these points make Hong Kong attractive as a location to work and live in to expatriate staff. Conversely, Hong Kong scores poorly on cost of living, due to very high residential rents.Market trend for the legal sector in Hong Kong Law firms in Hong Kong are increasingly seeking future-proof space by increasing efficiencies and securing longer-term tenancies. Obvious trends in the market include shifting the file storage off-site, standardising offices, enhancing front of house space flexibility, office sharing, and decentralisingshared service centres.In addition, a number of larger law firms occupying less than 30,000 sq ft office space have elected to split functions. One example is Mayer Browns shared services move from Sheung Wan to Wong Chuk Hang which is anemerging district on the south side of Hong Kong Island.Figure 2: Major law firms in Hong Kong (principal current location)Company District Building Size (sq ft) Mayer Brown Central Princes Building 93,000Baker & McKenzie Central Hutchison House 80,000Deacons Central Alexandra House 78,000 Source: Colliers InternationalNote: The average net floor area for a typical law firm in Hong Kong is estimated to be 20,900 sq ft_2 Colliers International (2018). Law Firm Trends and Outlook Report 2018. 8COLLIERS RADAR OFFICE (LAW SECTOR) | ASIA | 5 DECEMBER 2018SingaporeSingapore scores 66.4% in our ranking and comes second overall. Singapore is becoming a pivotal legal centre in Asia. The strong rule of law and high quality of legal services in Singapore provide additional impetus to the countrys economic growth, and enhance the confidence of foreign enterprises about investment in in Singapore. Socio-economic factorsUnder socio-economic factors, Singapore does not score highly on measures of growth potential or economic output since it is a small country with a population of just 5.6 million. However, Singapore ranks highest in Asia on employment criteria and availability of talent. The countrys strength in employment criteria reflects high scores on political stability, ease of doing business, corporate tax rate, city infrastructure, and English language capability. The excellence of the countrys educational and research facilities is indicated by the leading position that its flagship academic institutions enjoy in rankings of Asian universities with particular strength in Law.Singapores scores on the sub-category of law-related factors are not as high as those of certain other major legal centres. Like Hong Kong, Singapores legal system is based on common law. However, our interviews with law firms suggest that many participants regard the legal services market in Hong Kong as more flexible and more open than the market in Singapore.Nevertheless, the legal sector plays an important role in Singapores economy. This is demonstrated by the following: > In 2017, the nominal value added of the legal industry in Singapore achieved SGD2.1 billion (USD1.5 billion), accounting for 0.5% of Singapores total GDP¹> The value of legal services exported from Singapore more than doubled between 2008 and 2017, from SGD0.4 billion to SGD0.9 billion (USD0.3 billion to USD0.7 billion). The value of legal services exported as a percentage of operating receipts grew from 19% in 2008 to 29% in 20171The growth in exports of legal services indicates the scope for Singapore lawyers and law practices to venture out of Singapore to meet and capture a greater share of international demand for legal services. The Singapore government has promoted the local legal profession and motivated it to expand into overseas jurisdictions such as Myanmar. In addition, Singapore has built a well-respected dispute resolution support system featuring the Singapore International Arbitration Centre (SIAC), which is now one of the most prominent in the world. In 2016, the SIAC received 343 new cases from parties in 56 jurisdictions, a 27% increase over 20152. The new Singapore International Commercial Court (SICC) is intended to be the Asian centre for resolving international commercial disputes. The SICC delivered its first judgment in May 2016, and by the time of the SICC Conference in 2017 had had eight cases transferred from the Singapore High Court and had delivered six written judgments._1 Singapore Department of Statistics (2018). Statistics Singapore Newsletter: Profile of Singapores Legal Industry. Retrieved: 22 November 2018, from: singstat.gov.sg/-/media/files/publications/industry/ssnsep18-pg1-3.pdf. 2 The Legal 500 (2018). Legal 500 Doing Business in Singapore. Retrieved: 23 November 2018, from: legal500/c/Singapore. Figure 3: Structure of Singapore CBD Grade A office stock Q3 2018Source: Colliers InternationalSocio-economic40.0%Property11.5%Human15.0%66.4%Law firms4.0%Vacancy rate5.6%Others90.4%Total stock:2.3 million sq metres9COLLIERS RADAR OFFICE (LAW SECTOR) | ASIA | 5 DECEMBER 2018Property factorsSingapore does not score highly on property factors. On the positive side, average net effective rent for prime grade office space of USD55 per sqmetre per month is only about one-half of the citywide average for Hong Kong. Based on our estimate, typical real estate costs for law firms in Singapore are 8-15% of monthly outgoings, versus 12-20% for Hong Kong. On the negative side, Singapores total prime grade office stock of 24.9 million sq ft (2.3 million sq metres) is only about one-third of the level of Hong Kong and 13% of the level of Tokyo. Singapores core CBD comprises Raffles Place and the New Downtown. The law sector occupies 4.0% of the total CBD Grade A office stock (see Figure 3) with 97% of those international law firms located in the core CBD area3. Secondary key locations for law firms to consider include Tanjong Pagar, Suntec City, and Beach Road. However, these locations accommodate a much smaller headcount and number of law firms, including local practices. Human factorsAs in Technology and as in Finance, Singapore ranks first in Asia on human factors. In particular, scores are high for personal tax rate, low air pollution, and the high-tech city index included in our list of criteria. Furthermore, the country is ranked first for city safety and quality of living. These factors provide strong attractions for international law firms to locate operations in Singapore.Market trend for the legal sector in SingaporeAt present, 48 of the Global 100 law firms have offices in Singapore, a rise of 20% from the level in 2016/17 and a 33% increase from the number in 2015/163. Furthermore, there is a continued level of inter-law alliances and partnerships in Singapore presenting adaptation to specific legal focus sectors. The Singapore government launched a “Tech Start for Law” programme on 1 March 2017 to help Singapore law practices embrace and utilise technology. Under the programme, Singapore law practices can apply for funding support of up to 70% of the first-year cost of adopting technology products for practice management, online research and online marketing. We wait with interest to see how new technology will interact with the legal landscape in Singapore in relation to the physical premises of law firms and how technology will be used to increase the efficiency of the legal office workplace._3 Colliers International (2018). Law Firm Trends and Outlook Report 2018. .Figure 4: Major law firms in Singapore CBDCompany District Building Size (sq ft) Allen & Gledhill CBD One Marina Boulevard 111,662Drew & Napier CBD Ocean Financial Centre 92,923Rajah & Tann CBD Straits Trading Building 76,256 Source: Colliers InternationalNote: The average net floor area for a typical law firm in Singapore is estimated to be 15,661 sq ft1